Econ 1000 Chapter 11

government failure

a situation in which total social surplus is decreased by government intervention in a market

public choice

academic subfield which uses the tools and framework of economics to analyze issues that historically fall within the domain of political science

Condorcet paradox

Nicolas de Condorcet - a situation in which a series of pair-wise majority votes over more than two options, leading to a cycling of winners

7 specific sources of government failture

(1) informational problems, (2) costs of complying with government bureaucracy, (3) corruption or kleptocracy, (4) regulatory capture, (5) rent-seeking, (6) logrolling and rational ignorance, and (7) deadweight-loss from taxes

economic calculation problem

the argument that a system of planning will never be able to achieve efficient outcomes, precisely because under such a system, the planners do not have the information generated by market activities available to them

costs of complying which government bureaucracy

when governments impose rules/regulations, individual households and firms need to expend resources to comply with the policies

corruption

an environment in which regulations are not enforced and decisions are not made evenly and without bias → corruption leads to inefficient decisions

kleptocracy

an environment of extreme corruption in which government officials unabashedly seek personal gain at the expense of the public interest

regulatory capture

a situation in which firms in a regulated industry influence a regulatory agency to the point where the agency enacts policies that are in the best interest of the regulated firms (even if the decisions are not in the best interest of the public)

rent seeking

attempts by people to manipulate government action or influence government decisions in order to make themselves better off at the expense of others

logrolling

the process by which a legislator votes to approve one bill in exchange for favorable votes from other members on other bills

rational ignorance

since becoming informed on matters of public policy has high costs and low benefits for individual voters, it is rational for them to remain uninformed

incidence of a tax

a measure of who bears the burden of a tax in terms of decreased welfare